Sherwin-Williams Lowers Q3 and FY21 Guidance; Shares Fall

The Sherwin-Williams Company (SHW) yet again lowered its third-quarter and full-year 2021 sales and earnings guidance due to increasing raw material supply challenges and inflationary pressures. The company also announced plans to expand its internal resin manufacturing capabilities with the acquisition of Specialty Polymers, Inc. Following the news of the revised outlook, shares fell 3.5% in the extended trading session on September 28.

Sherwin-Williams manufactures and sells paints, coatings, and related products to professional, industrial, commercial, and retail customers. Shares have gained 18.9% over the past year. (See Sherwin-Williams stock charts on TipRanks)

The company mentioned that the recent impact of hurricane Ida has severely hampered the production of several resins, additives, and solvents, all of which are key ingredients for SHW’s products. To add to that, suppliers have pushed the production of these raw materials to later than September, and SHW does not expect these headwinds to improve in the fourth quarter as previously expected.

The unavailability of these raw materials coupled with inflationary pressures has led the company to reduce its sales and earnings forecasts for both the third quarter and full-year 2021. Having said that, the company also mentioned that it will continue to invest in strategic growth initiatives and expects long-term momentum to remain positive.

For the third quarter, the company now projects revenue to be flat or slightly down year-over-year. Also, Q3 adjusted earnings are expected to be in the range of $2.00 – $2.10 per share.

Additionally, SHW lowered its full-year 2021 revenue guidance and revised its adjusted earnings expectations to fall in the range of $8.35 – $8.55 per share. The company also raised its raw material prices upwards to high teen percentages compared to the prior year.

Commenting on the current scenario, John G. Morikis, SHW’s Chairman, President, and CEO said, “We will continue to partner closely with our suppliers to improve supply while employing all of our assets to reduce the impact on our customers. We are confident the majority of sales delayed by these conditions will be recovered over future quarters as raw material availability improves.”

Morikis added, “We continue to combat these elevated costs with pricing actions across all of our businesses. We are maintaining staffing in our manufacturing facilities to ensure we meet the demand as quickly as raw material availability issues subside. While maintaining these costs puts additional pressure on our third and fourth-quarter earnings, we are committed to providing the resources necessary to drive our customers’ success.”

In other news, SHW announced that it has inked a deal to buy Specialty Polymers, Inc., a manufacturer and developer of water-based polymers used in architectural and industrial coatings and other applications. Specialty Polymers is already a supplier of SHW, and the new entity will merge with SHW’s Performance Coatings segment. The deal is expected to close by the end of 2021.

Commenting on the deal, Mr. Morikis said, “In addition to Specialty Polymers’ significant current capacity, we see the opportunity to add millions of pounds of additional capacity to its footprint in the near term with relatively minimal investment. This additional capacity will allow us to better serve the strong demand of Sherwin-Williams customers while also expanding the ability of Specialty Polymers to serve its external customers.”

Recently, J.P. Morgan analyst Jeffrey Zekauskas lifted the price target on the stock to $330 (18% upside potential) from $310 while maintaining a Buy rating.

On September 8, SHW first lowered its revenue and earnings guidance for the third quarter due to rising raw material prices and supply shortages. Following this, Zekauskas noted that despite the revised outlook, he expected the company to “fare well” in 2022 and 2023.

Overall, the stock commands a Strong Buy consensus rating based on 9 Buys and 3 Holds. The average Sherwin-Williams price target of $321.50 implies 15% upside potential to current levels.